Key Chevron witness describes alleged corruption in Ecuadorian courts

FORTUNE — A key witness in Chevron’s racketeering trial against environmental lawyer Steven Donziger, who won a $19 billion judgment against the oil giant in Lago Agrio, Ecuador in 2011, has testified to personal knowledge of corruption in the Ecuadorian courts stretching back decades.

“As a practicing attorney [between 1982 and 1995],” ex-judge Alberto Guerra Bastidas, a witness for Chevron, testified last week, “I on occasion bribed judges, including judges on the nation’s highest courts. And as a judge [from 1995 to 2008], I occasionally accepted bribes from litigants.” On cross-examination he estimated that he had participated in ten to 20 such bribes as an attorney, and ten to 20 more as a judge.

“Based on my own personal knowledge,” Guerra continued, “I know that … most other judges who served on the provincial court of Sucumbíos” — the rural, jungle province on Ecuador’s eastern border with Colombia, where the judgment against Chevron arose — “accepted bribes from litigants and attorneys.” He knew this, he said, both from conversations with those judges and from having, on some occasions, shared bribes with them while serving on three-judge appellate panels.

The $19 billion judgment against Chevron stems from an environmental suit filed in Lago Agrio in 2003 by Donziger and leaders of the Amazon Defense Front, seeking damages for contamination allegedly left behind by Texaco after drilling there from 1964 to 1990. (Texaco was acquired by Chevron in 2001.) In 2011 Chevron filed its own civil suit in Manhattan against Donziger and the Front under the Racketeer Influenced and Corrupt Organizations Act (RICO), alleging that the Lago Agrio judgment had been obtained through bribery, extortion, fraud, extortion, witness tampering, obstruction of justice, and money laundering. (The Front and its leaders, Pablo Fajardo and Luis Yanza, have defaulted by failing to appear to defend the RICO case.)

Chevron CVX called Guerra because he maintains — as has been known since January — that he acted as an intermediary through whom the New York-based Donziger and his Ecuadorian confederates bribed Nicolás Zambrano Lozada, the judge then presiding over the Lago Agrio suit, into allowing them to ghostwrite their own $19 billion judgment in the case. Guerra says Zambrano did so in exchange for a promise of $500,000 to be paid from any recovery received. Zambrano, in turn, promised Guerra 20% of the bribe (i.e., $100,000), he testified. (In a declaration submitted in March Zambrano denied the allegation, stating: “I confirm that I am the only author of the judgment. … I did not receive support or assistance from Dr. Alberto Guerra or from any other person, much less from the litigant parties.” Donziger’s attorneys have said they will call Zambrano to testify later in the trial.)

According to Guerra, he had a close friendship and longstanding corrupt relationship with ex-judge Zambrano which goes back to 1998. At that time Guerra was a magistrate on the Sucumbíos court and Zambrano was a prosecutor. Zambrano would secretly tell Guerra to dismiss certain cases he was prosecuting, Guerra said in his written direct testimony, and then share with Guerra bribes that Guerra understood Zambrano to have received from the criminal defendants or their allies. (Zambrano’s March declaration did not address this specific accusation, which had not yet been leveled.)

The trial in Chevron’s RICO suit, before U.S. District Judge Lewis Kaplan, began two weeks ago, and is expected to last another three weeks. To expedite the case, which is being tried before Kaplan without a jury, the parties have been ordered to submit the direct testimony of their witnesses in the form of a sworn narrative written statements, with only the witness’s cross-examination occuring live in court. (This is a common procedure in nonjury trials in Manhattan federal court.) However, because of the importance of Guerra’s credibility, Kaplan asked that Guerra also deliver portions of his direct testimony live.

As a judge, Guerra served a brief stint as the presiding judge on the case against Chevron, officially known as Maria Aguinda v. Chevron, when it was first filed, in May 2003, until January 2004.

In 2008 the Judicial Council of Ecuador threw Guerra off the bench for, according to the Council’s orders, having been overheard privately expressing his opinion that the Aguinda case should be dismissed.

A few months afterward, Zambrano was promoted to become a judge on the Sucumbíos court. At that point, Guerra testified, the recently fired Guerra struck an illegal deal with the newly appointed Zambrano, who knew little about civil law, whereby Guerra would ghostwrite Zambrano’s rulings in civil cases in exchange for about $1000 per month. (Guerra turned over his computers and thumb drives to Chevron in July 2012. A Chevron digital forensics expert testified earlier in the trial that Guerra’s drives contained verbatim drafts of at least 101 orders and rulings ostensibly issued by Zambrano in various civil cases pending in the Sucumbíos court, plus nine of Zambrano’s orders in Aguinda v Chevron. The expert testified that metadata on those files showed that, in each instance, the orders originated on Guerra’s computer and were last revised there several days before the official orders were issued over Zambrano’s signature. Other details of the ghostwriting relationship between Zambrano and Guerra have been at least partially corroborated by Guerra’s bank statements, deposit slips — at least one of which bears Zambrano’s apparent signature — daily planners, and records of a courier service that Guerra says the two used to send court files and flash drives between Zambrano’s office in Lago Agrio and Guerra’s home in Quito.)

Zambrano served two stints as presiding judge on the Chevron case, the first from October 2009 until February 2010, and the second from October 2010 until March 2011. The $19 billion judgment was issued on February 14, 2011, during the second stint.

At the beginning of each term, Guerra testified, Zambrano had him first approach Chevron, seeking bribes, because they knew Chevron would be able to pay more than the plaintiffs, and would have money immediately on hand. (In October 2009, two Ecuadorian lawyers working for Chevron on the Aguinda case filed sworn, notarized memos to the file — now in evidence in the RICO case — reporting suspicious overtures then made by Guerra and others during this time period. The 2009 memo of Chevron’s lead Ecuadorian attorney during this period, Adolfo Callejas, asserted that a former court clerk, whom Callejas understood to be Zambrano’s girlfriend, had called him to propose a private meeting between Callejas and Zambrano at Zambrano’s home in Manta, Ecuador. When Callejas testified at the RICO trial last week, he was asked on cross-examination why he did not report any of these overtures to the authorities at the time. He responded that suspicious overtures and “miraculous offers” to fix cases were “commonplace” in Ecuador.)

Once Zambrano’s approaches to Chevron were rebuffed, Guerra testified, Zambrano told him he should approach the Aguinda plaintiffs’ team. Guerra then struck a tentative deal with Fajardo, he testified, but Guerra told him Donziger had to give the final approval. Guerra eventually met with Donziger, Fajardo, and Yanza at a Quito restaurant called the Honey & Honey, he testified, where he outlined the deal that Fajardo and he had spoken about: Guerra would ghostwrite orders for Zambrano that would expedite the plaintiffs’ case and steer matters in their favor, and the plaintiffs team would pay Guerra about $1000 per month. Donziger approved the deal and thanked Guerra for his help, Guerra testified.

(Chevron has previously submitted two emails from this period in which Fajardo and Donziger talk about the “puppet” and the “puppeteer” in what it says are coded references for the relationship between Guerra and Zambrano. In late October 2009, for instance, Fajardo wrote to Donziger: “The puppeteer won’t move his puppet until the audience doesn’t pay him something.” In addition, Guerra’s bank statements, submitted into evidence last week, do reflect $1000 deposits for each of at least four of the five months of Zambrano’s first term on the case, and on at least one occasion a deposit slip for money being deposited into Guerra’s account bears the apparent signature and unique national identification number of Ximena Centano, who was then a staffer working for the Front’s litigation team in Quito. Centano was scheduled to be deposed by Chevron in Lima, Peru, this past June — with all travel expenses to be reimbursed by Chevron — but failed to show. The RICO defendants say she no longer works for them and, thus, they don’t control her.)

Zambrano’s written declaration, filed in court last March, asserted that everything he did during his first term “was transparent and in accordance with statutory law and equity.” A short declaration submitted by Donziger in April said, “I am unaware that Guerra has ever ghostwritten decisions of the Lago Agrio litigation; I am unaware of any ‘help’ by Guerra to ‘steer’ the decision in favor of plaintiffs … and I never thanked Guerra for these things.”

Zambrano’s second term began in October 2010. After another overture to Chevron was rebuffed, Guerra testified, he met once again with Donziger, Fajardo, and Yanza at the Honey & Honey. There Guerra conveyed Zambrano’s offer to allow them to ghostwrite the final judgment for $500,000, Guerra said. Donziger was enthusiastic, Guerra said, but said they didn’t have the money available. (In his declaration this past April, Donziger acknowledged the meeting and the $500,000 offer, but said, “I refused Guerra, and told him that neither I nor any of the Lago Agrio Plaintiffs team would do such a thing … I have never sought to pay any money in exchange for a favorable verdict … nor have I encouraged or solicited anyone else to discuss or pursue paying money for a favorable verdict.”)

Guerra testified that Zambrano later informed him that he had reached a deal with Fajardo whereby the $500,000 would be paid from out of the recovery.

During the remainder of Zambrano’s second term, Guerra continued to ghostwrite Zambrano’s occasional orders in the case, Guerra said, but now — due to heightened security concerns on Fajardo’s part — he was to write them on a laptop provided by Fajardo rather than on his own computer.

About two weeks before the final judgment was issued, Guerra testified, he was summoned to Zambrano’s apartment in Lago Agrio to review the ghostwritten judgment, which then resided on Fajardo’s laptop. For two days he made formalistic edits to it, he testified, to make it look more like a judgment of the Sucumbíos court. He understands from Zambrano that the plaintiffs then continued to make small changes to it right up until the “last moment.” Using a printed copy of the final draft, the daughter of a friend of Zambrano’s then manually typed the draft into Zambrano’s computer, according to Guerra.

In Guerra’s written testimony, he testified that the corrupt arrangement he and Zambrano struck in the Chevron case — allowing one side to write its own judgment in exchange for a bribe — was very similar to one they struck in mid-2009 in another case. On that occasion, an oil pipeline company known as Oleoducto de Crudos Pesados (OCP), “paid Mr. Zambrano and me to issue an appellate judgment they had written,” Guerra declared in his written direct testimony. Guerra testified that OCP paid him $20,000 on this occasion, and it paid Zambrano, through Guerra, $50,000. (The draft judgment in the OCP case was among the rulings contained on Guerra’s computer when he turned it over to Chevron, Guerra writes, and Chevron has offered a copy of that file into evidence.) A woman reached by telephone at OCP, who declined to give her name, said that the company declined to comment on the accusation.

Zambrano was himself kicked off the bench, along with a second judge, by the Judicial Council in February 2012 for alleged improprieties concerning their conduct in handling an appeal from a bail application of an accused narcotics trafficker in 2009. According to the Council orders and news accounts, Zambrano and the other judge voted to release the suspect, who had been charged in connection with a 500-kilo cocaine bust, on his own recognizance, which allowed the suspect to abscond.

Shortly after Zambrano’s dismissal, Guerra testified, Zambrano “authorized” Guerra to approach Chevron about revealing the truth about how the judgment was written, presumably in hopes of being paid handsomely for their information. Guerra did approach Chevron, expecting to serve as a “bridge” to Zambrano, he said, but Zambrano later backed out for reasons Guerra said he does not know.

On cross-examination, the RICO defendants’ attorneys stressed inconsistencies in the details of Guerra’s accounts since he first started speaking to Chevron’s representatives in July 2012. For instance, he originally remembered having received the ghostwritten judgment on a flash drive handed to him at the Quito airport by Zambrano — the way they had allegedly exchanged documents during Zambrano’s first term on the case — and having edited it on his own computer in Quito. Only after being informed by Chevron representatives that the ghostwritten judgment was not among the files on his computer hard drive did he recall having edited it on Fajardo’s laptop in friends’ apartments in Lago Agrio.

The defense lawyers also stressed on cross the many emoluments that Chevron gave Guerra in exchange for his cooperation. They paid him $48,000 for physical evidence — computers, flashdrives, cellphones, records — paid travel expenses for his and his son’s families to flee Ecuador, agreed to pay his attorneys fees in connection with the RICO case and for seeking political asylum for his family, and committed to pay him $12,000 per month for living expenses in the United States for two years.

Since Guerra had another son and a daughter already living in the United States prior to his cooperation — neither of whom he had seen since 2009 — defense lawyer Julio Gomez of Westfield, New Jersey, suggested that the enticement of emigrating to the United States was another incentive to fabricate a story favorable to Chevron.